That got-to-get-this-done attitude

Counsel dispensed on 'Baby Step 3,' gifts for grandkids, savings

Dave Ramsey is America's trusted voice on money and business. He has authored five New York Times best-selling books: "Financial Peace," "More Than Enough," "The Total Money Makeover," "EntreLeadership" and "Smart Money Smart Kids." His newest best-seller, "Smart Money Smart Kids," was written with his daughter Rachel Cruze, and recently debuted at No. 1. "The Dave Ramsey Show" is heard by more than 8 million listeners each week on more than 500 radio stations. Follow Dave on Twitter at @DaveRamsey and on the Web at daveramsey.com.

I’m about to complete Baby Step 3. I’ve been very intense about following your plan, but I was wondering if there’s ever any kind of frustration or letdown after you’ve come this far.

Rasheed

Dear Rasheed,

You’re right. The beginning three Baby Steps are very intense. First, you get $1,000 in the bank – $500 if you make less than $20,000 a year – for a beginner emergency fund as fast as you can. Then, pay off all your debts, except the house, from smallest to largest, and after that you finish out your emergency fund with three to six months of expenses. This is a real whirlwind of activity because everything should be wrapped up in an aggressive, we’ve-got-to-get-this-done kind of attitude.

I guess if there’s a letdown it could come from the feeling that once you’re out of debt except for your house, things should kick into overdrive and you’ll become instantaneously wealthy. That just isn’t realistic. But it does remove a ton of stress from your life, and you’ll experience a sense of freedom you’ve never felt before. Just think about it. Try to imagine how it would feel to have no payments on anything except your home. There’ll be no more credit-card bills and no more car payments. How great is that?

As for frustrations, they’ll be fewer because a huge cause of stress and frustration will disappear after you gain control of your money and get out of debt. You may feel like things aren’t moving fast enough, but things never seem to move fast enough when you’re intense and really into what you’re doing!

Dave

Best gift for the grandkids?

Dear Dave,

What’s the best financial gift for young grandchildren?

Anonymous

Dear Anonymous,

Well, it’s definitely not savings bonds. You get nothing in the way of a return from those things. I get mad just looking at them! I’d suggest opening up an Educational Savings Account in a mutual fund in the child’s name. You can put up to $2,000 a year, per child, into these, and they grow tax-free.

If you started when your grandchild was born, and set aside $2,000 a year for 18 years, you’d have saved $36,000. But if you go the Educational Savings Account route, and figure 12-percent average growth over that time, the kid could have about $126,000 waiting when it comes time for college. That’s a pretty sweet gift!

Dave

The place for savings

Dear Dave,

Where is the best place for me to put my savings?

Anonymous

Dear Anonymous,

Saving and investing are two things I talk about a lot. Investing is when you’re going to leave the money alone for five years or more. I’m talking about things like retirement, college planning or saving up to buy a house. For these things, I recommend good, growth-stock mutual funds. Make sure you’re looking at mutual funds that have stable track records of five to 10 years, and then spread your money across these four categories: growth, growth and income, aggressive growth and international.

Now, when it comes to savings, I’m not really concerned with making money. Things like setting money aside for vacations, Christmas or even an emergency fund fall into this category. One and a half percent would be an incredible rate on a savings account right now, so you’re not going to get rich off anything like this. The idea is to park this money in a safe place, and keep it separate from the rest of your money so it doesn’t get spent on the wrong thing!